Markets Bet on Fed Rate Cuts to 2% by 2027 as Sentiment Shifts

Traders in US futures and options markets have aggressively pivoted their outlook, moving from pricing rate hikes in 2027 to betting on a prolonged easing cycle. The SOFR spread between December 2026 and December 2027 has inverted to -8 basis points, signaling market conviction in a deeper cutting path. Open interest in SOFR December 98.00 calls has surged past 400,000 contracts, indicating significant bets that the Federal Reserve's policy rate will drop to 2%. This shift marks a sharp reversal from previous expectations, as concerns over persistent inflation are being replaced by the perceived need for long-term monetary support. The emergence of such a dovish trajectory is expected to weigh on Treasury yields and the US Dollar while providing a tailwind for Gold and fixed-income assets.